Break even analysis

Break even analysis is used to determine minimum level of sales to ensure the company will not
experience loss. At the same time, figuring out how to continue or maintain the profit if the sales
decrease. Break-even analysis is based on fixed costs and variable costs. Variable expenses are
not constant and do change with the level of output. Break-even point is the point where total
income from sales is equal to total expenses. At this point the business will not make any losses
or profit.

Below listed few terminology to help in performing the break even analysis

Terms Description
Volume level of production
Fixed cost cost that remains constant regardless of the
number of units produced,
Example:
Cost of the machine used, cost of installing the
machine, cost of designing and fabricating the
work holding devices, cost of the space for
machine
Variable cost Vary with the volume of the units produced
cost of machine operators,
Example :
Time, cost of running the machine, cost of
cutting tools, cost of material used).

Total revenue Price x Volume sold.

Profit Difference between total revenue and total
cost.
Fixed cost of Nasi Kukus Mama

Item Cost per unit (RM) Quantity Cost (RM)

Chair and Table 300.00 30 9000.00
Cash Register 400.00 3 1200.00
Fan 110.00 5 550.00
Air conditioner 1200.00 6 7200.00
Ceiling light 55.00 12 660.00
Serveware (set)
a) Spoon 20.00 20 400.00
b) Fork 20.00 20 400.00
c) Spatula 60.00 10 600.00
d) Food tray 12.00 50 600.00
e) Tong 30.00 10 300.00
Cookware
a) Chafing dish 200.00 12 2400.00
b) Pots and pans
c) Rice cooker 300.00 15 4500.00
d) Deep fryer
e) Microwave 450.00 4 1800.00
f) Ranges
460.00 3 1380.00
350.00 2 700.00
2

Sink 350.00 3 700.00

Freezer 1300.00 2 2600.00
Refrigerator 1200.00 2 2400.00
Fire extinguisher 90.00 5 450.00
 Cleaning buckets and set 270.00 5 1350.00
Metal shelves 140.00 3 420.00
Food Processors 350.00 2 700.00
menu board 250 8 2000.00
Shop rent 1300.00 1 1300.00
Sum
43610.00

Variable cost of Nasi Kukus Mama

Item Cost per month Cost per Quantity Total Cost per
(RM) day(RM) serving (RM)
Labor cost 6.50/1hr 39 14 worker /6hr 546
Utilities 2500.00 84 1 84.00
Raw material 30000.00 1000 1 1000.00
Cleaning items 400.00 13 1 13.00
Supplies and Packaging 700.00 24 1 24.00
Materials
Sum
1667.00

To obtain the value of the variable cost per serving, total cost per serving divided with average
serving per day.

Total Cost per serving 1667

= = 3.3
Average serving per day 509

Variable cost per serving: RM3.30

Total Cost

= +

= + .

TC Total cost
Cf Fixed cost.
Cv Variable cost per unit.
v Volume (no of unit produced and sold).

Hence, = 43610 + 3.3v

Total Revenue

= .

v Volume (no. Of unit produced and sold).

p Price per unit.

Hence, = 12.

Profit

TR Total revenue
TC Total Cost.
All the data can be represented in a graph as shown above. The red line represents the Total cost
for each unit produced and sold, and can be calculated by using the equation = 43610 + 3.3v
The blue line represents the Total revenue, and can be calculated by using the equation = 12.
The point of intersection between the Total Revenue and Total Cost lines is called the Breakeven
point.At this point, the total cost and total revenue have the same value.

Breakeven can be proved through total cost and total revenue formula or Breakeven Sales Volume

43610
= 5012.64
12 3.3

+ . = .

43610 + 3.3v = 12

= 5012.64

Hence it prove break even unit is , 5012.64. If the sales below the break even unit Nasi Kukus
Mama shop will suffer loss